What is so special about NFTs?
NFTs spark mixed feelings among much of the public today. Chances are, you've probably heard this before: "NFTs are just JPEGs. Why not screenshot them?"
Other than images, NFTs also take the form of music, videos, and even blog articles. The most compelling feature of NFTs is their unique identity. One JPEG NFT is never the same as another (even if they look the same) because each NFT has a unique ID — similar to how each human has a unique thumb print.
Because each NFT is unique and its ownership is easily verifiable on the blockchain, they have opened the gateway to:
- reimagine advertising practices
- vitalize the digital creator economy
- provide a single source of truth for supply chains and pharmaceutical manufacturing
Just like the internet changed the economic landscape of the 21st century, could NFTs help re-imagine our economic interactions moving forward?
Let's dive into 10 use cases of NFTs to understand where these JPEGs and MP3s are headed.
1. Rewarding desired behaviour: Open source Contributors and event attendees
Did you know? WordPress is an open source Content Management System that is used by 64.8% of all the websites on the internet today. There is a large community of developers, designers, and scientists contributing to and supporting this software for free.
The ethos of open-source culture is generous and useful in building important software. How do we reward such behavior and encourage more people to join in? NFTs. For open source projects, NFTs issued as tokens of appreciation are a badge of honor for contributors — a symbol that they can collect as memento or even trade for high value in the marketplace.
Early this year, the Proof of Attendance Protocol (POAP) raised $10M to fund its widely used event badge app, which allows event organizers to issue NFTs to its attendees. NFTs are unique identities recorded publicly in the blockchain. With the reward of an NFT as a motivator, organizations have an innovative and easy way to provide incentives for a desired behavior.
2. Upgrading the token economy in Gaming
The concept of tokenization in gaming is not new. All variety of games from Candy Crush to World of War Craft have an internal economy that circulates value through in-app tokens.
Re-imagining these tokens as NFTs has transformed in-game purchases by facilitating transferable assets across interconnected games and enabling the exchange of tokens for money or other digital assets. As NFTs are a part of the blockchain, they can be exchanged for money easily. Plugging into Decentralized Finance (DeFi) via the blockchain has made the Play-2-Earn model widely successful today.
For instance, Crypto Raiders, an NFT pixel dungeon crawler game, allows players to trade their NFT characters on OpenSea.
Not only do players benefit from the experience of this retro game, but they also get to participate in DeFi through staking their $RAIDER tokens and earning $AURUM rewards by successfully raiding dungeons. NFTs have added financial versatility to the gaming ecosystem, encouraging more people to participate in the activity.
3. Direct Revenue-generation model for creators
Independent artists, journalists, and vloggers yield most of their revenue from brand promotions and ads on centralized social network platforms. While these influencers amass a broad audience online, their platform could easily be taken away from them. We've seen this happen plenty of times on YouTube, Twitter, and Instagram, causing these creators to lose their audience and their revenue source.
NFTs provide creators the opportunity to connect directly with their audience and have control over their community and influence platform. Creators are selling digital assets and getting direct revenue from their sales instead of the indirect revenue generation from Google's AdSense revenue share or 3rd party sponsorships.
Writer and journalist, Laura Shin, recently used NFTs as tickets to her book club to connect with her audience and promote her brand.
The upsides of going direct to your audience for sales are massive as creators get to focus more on building their own brand as opposed to integrating other brands' names into their content. At the same time, they get to foster direct relationships with the people who support them.
4. Developing the Metaverse: Digital real estate
Similar to social media in the late 2000s, speculators expect the Metaverse to be one of the biggest technological development of this decade. This immersive world that promises users an experience parallel to the real world, could ultimately be the destination for hosting concerts, work meetings, visiting marketplaces, and many more.
NFTs have already tapped the VR world, with digital real estate selling like frenzy on OpenSea. Even the country of Barbados is opening an embassy in the Metaverse. One of the embassy ambassadors stated, "you don’t want to wait until 2030, when this thing is part of everyday social interaction, to start explaining it.”
NFT-izing virtual real estate mirrors how we reflect property ownership in real life. Just like how ownership of homes in the US can be proven by registry through the local jurisdiction, NFTs make it easy to verify ownership through the blockchain — a reliable, single source of truth.
With long developmental cycles in building the Metaverse, onboarding mainstream users to the virtual world is still an ongoing process.
But, we are seeing promising early adoption of the technology with real estate development. For instance, a Twitter influencer and NFT collector, @punk6529, recently announced the launch of The Museum District in the Metaverse. The 6529 team is planning to onboard more than just crypto degens to participate in the Metaverse by providing education about NFTs and reducing barriers of entry to the Metaverse (low cost, easy to use).
With NFTs plugged to the blockchain, integrating DeFi activities becomes possible as well. For instance, a user could sell their Virtual Land A, and use those funds as collateral to generate passive income, which they could use to enjoy experiences like visiting the Virtual Museum. With DeFi, we can foresee more economic activity flourishing through the Metaverse.
5. Strengthening Brand
US companies alone spend more than $1 trillion a year on marketing. With brand awareness being the most important goal, companies are constantly looking for new and penetrating ways to connect with their audience and strengthen their brand.
In 2021, Nike launched Nikeland, which is a Metaverse that immerses users in everything Nike. This is Nike's attempt to find new ways to connect with its customers and proliferate its name. Users are encouraged to gear their avatars with the newest Nike drops, like Air Force 1 Fontanka and Air Max 2021 sneakers.
The Nikeland launch was a significant win for Nike as it was a key strategy to Nike’s revenue growth in Q3 of 2022. Almost 7 million people have visited Nikeland since November 2021 and the company is not stopping there. The brand plans to double down on this venture and continue to release virtual products like special LeBron 19 styles for Roblox.
Creative companies like Warner Bros have also capitalized on the branding upside of the NFT market. In April, DC released the Bat Cowls NFT collection to allow DC fans to connect closely with the creators. The cowls symbolize the buyer’s “identity” in the fictional Gotham City of the DC universe and authorize holders to vote on key aspects of a comic, including storyline, characters, and art to help drive the ongoing narrative of the Bat Cowls.
Similar to Comic-Con and merch releases, the NFT collection is another way for DC to engage its fans and establish brand loyalty. The Bat Cowls project garnered more than $2 million in the primary market, with more sales expected in the secondary market.
6. Tracking the Supply Chain
Outside of increasing sales revenues and stimulating further economic activities, NFTs could make waves in logistics by removing common pain points in the supply chain. With the train of online shopping and global trading chugging in full steam, the supply chain industry is forced to relentlessly innovate to keep up with increasing demands. Streamlining the supply chain processes with NFTs would speed up logistics, making them an attractive solution for leviathans like Amazon and Alibaba.
Unlike long and extensive paper trails that are currently used to track a product, NFTs create a digital footprint that attaches to a good throughout its lifespan. NFT metadata can hold real-world data like the identity of the good, its current physical location, the party responsible for the good, container temperature, and many other metrics. This will allow managers to plan ahead and act promptly. For example, if a part in China is delayed, the manufacturer will know in advance, allowing them to source the part from another location.
As such, NFTs can increase efficiencies and reduce costs incurred in the process of sourcing and acquiring goods and services a company needs.
A picture is worth a thousand words. Using one image to convey a message can be far more effective than a 5000-word essay. With social media, the most viral social campaigns are associated with a pictorial symbol that netizens often upload on their PFPs to convey their support.
With the memetic nature of images, NFTs can increase the virality factor of fundraising efforts. Not only do supporters pool funds for the cause, they also get to use the NFT they purchased to proliferate the cause and continue displaying their support.
The cofounder of a DeFi protocol, PoolTogether Inc., who was recently personally sued in a putative class action lawsuit (allegedly unfairly), used NFTs to raise awareness about the lawsuit and crowdsource funds.
The crypto community immediately rallied together to support the protocol, sharing images of the NFTs online to spread its story. Within 9 days, this initiative has raised more than $1M.
Veering outside the crypto community, NFTs have successfully crowdsourced millions of dollars for the Ukraine war. Recently, more than 200 Ukrainian artists came together to raise funds for the Ukrainian army. The Ukrainian government is also using NFT collections to illustrate a real news piece about the war from an official source to crowdfund.
8. Preventing counterfeits
What's a similarity among the pharmaceutical industry, luxury fashion industry, and wine industry? They all require reliable verification of their goods. Since NFTs have the ability to display the digital footprint of each good, they are able to verify if a drug has the right ingredients or identify fake prescription.
Similarly, in the case of luxury goods, consumers can use public ledger of the blockchain to verify if the handbag they purchased is made from the right material or a piece of jewelry is made using the right manufacturing process.
One example of this technology already getting put to good use is in the luxury goods market, where operators have teamed up to launch a blockchain platform. When consumers buy a high-end watch, handbag or piece of jewelry, they’ll be provided with a corresponding unique NFT, which shows the origins of their product, including information about the materials and manufacturing process. This means that all such products can be individually authenticated. The NFTs can be used to identify and trace the complete supply chain.
Ultimately, NFTs help to protect consumers from counterfeit goods.
9. Customer loyalty programs to increase sales revenue
Customer loyalty initiatives has become a hallmark strategy for increasing sales revenue. With existing customers being more than 60% likely to become repeat customers, companies are continuously working on innovative ways to preserve their customers' loyalty. Brands like Starbucks and Budweiser are using their NFT collections to build a digital community that celebrates their heritage.
Starbucks plans to provide its NFT holders access to exclusive content experiences and reinforce its concept of The Third Place — a feeling of comfort that uplifts customers everywhere, and in every way, they experience Starbucks.
Last year, Budweiser sold out its NFT collection within an hour of launch, with 75% up for resale. The company has gone all in on NFTs by buying the domain beer.eth for $75,000 and redirecting users to OpenSea on their Twitter account.
Many other brands have followed suit by using NFTs as part of rewards schemes to promote loyalty. Their main goal is for enthusiasts to keep the NFT and enhance a sense of community among holders. With the majority of NFT holders being an even spread of millennials and older Gen Zs, NFTs are also a gateway to connect with younger buyers.
10. Build audience using re-imagined monetization models for creators
Since NFTs are integrated in the blockchain, their application is platform-agnostic. In other words, creators can provide access to their content to their audience on any platform. For instance, the same NFT that was used to provide access to gated content on their blog site can be used to grant roles in a private Discord server. This gives creators more versatility in segmenting their audience and incentivizing subscription.
Additionally, NFTs can be traded in the secondary market. So, after gaining access to a specific content, a user can then sell that NFT. With the possibility of the NFT's value appreciation, members are incentivized to share the work of the creator. This creates a positive feedback loop in content creation — creator generated quality content and members are incentivized to share the content to increase the creators' following!
With the launch of writing NFTs on Mirror, writers online have access to a new way of monetizing their content as well. Writings that resonate with a wide audience are ranked on Mirror's leaderboard, allowing writers to get discovered and paid purely because many people resonated with their work.
With the help of Web3, NFTs are supercharged with platform interoperability. Additionally, it is easier to reward quality content compared to clickbait work on Web2 platforms. Such versatile and new ways to build an audience could help both creators and consumers generate quality content.
The future of NFTs
On the whole, NFTs are very exciting because they do 2 things well:
- Upgrade existing economic activities GameFi, event organization, crowdsourcing, advertisement and branding, Metaverse sales
- Create new monetization models Provide marketplaces for digital art, introduce new and direct payment models for creators
The NFT realm is still in its infancy stage and much of its success relies on mass adoption. NFTs get bad reputation because they have a high barrier to entry at first glance. It would require convincing for someone who knows nothing about cryptocurrency to buy a JPEG for $100.
But, one takeaway from the use cases above is that almost anything can be tokenized. As more innovators enter the NFT space and implement tokenization to produce more efficient and attractive solutions, more people might consider joining the exciting world of NFTs.
Remember, while we love to share which projects we've been into, please remember to always DYOR on new protocols!
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